How to Invest 100K Like a Pro (And Make Your Money Work for You)

Maybe you worked hard to save money or you received a sudden windfall. You have $100,000 and little idea about what to use it for.

“Invest it,” people say. But you aren’t sure how to invest $100,000 with new investment opportunities popping up every day. Which opportunities should you trust, and which options might be better to avoid? How much should you put where? And how should you navigate the investment landscape?

This guide could make things easier. Let’s explore the main investment rules and areas where you could invest your money.

Before you invest $100K

If you have $100,000 to invest, you might be eager to get started. But before you rush to pour all your money into your investment of choice, there are a few things you may want to do first.

1. Get rid of high-interest debt

If you have a lot of high-interest debt, I would recommend you pay that off before you begin investing. This is because you may be paying more in interest that you would earn by investing.

For example, let’s say you have credit card debt that you’re paying 20% interest on. That’s way higher than the average returns you might make from investment assets that track the performance of the broad stock market. Therefore, eliminating your credit card debt should be one of your top priorities.

2. Put aside money for emergencies

After you pay off your debt, my next recommendation would be to start an emergency fund. Saving for unexpected expenses — like an injury, loss of a job, or a major home or auto repair — is essential.

The benefit of having an emergency fund is having the cash needed to avoid high-interest debt. Being forced to use a credit card or a loan for emergency expenses might set you back further away from your financial goals.

Although there is no one-size-fits-all for emergency funds, a common recommendation is to have three to six months’ worth of expenses covered at all times. I personally have about three months’ worth saved because I have a partner who also brings in income, I don’t own a home, and I have no dependents. If you are single, have children or pets, or own a home, you may want to have closer to six months’ worth saved.

This money is best kept in cash or highly liquid forms so you can access it quickly when needed.

3. Budget for your needs

Investing is a crucial part of long-term wealth-building, but ‌budget for your day-to-day needs first. Your investments won’t do much good if you don’t have the money to cover your rent, mortgage, or groceries.

There is no shortage of budgeting methods and budgeting apps to help you execute them. Whatever your preferred budgeting method might be, make sure your needs are fully covered before you invest.

How to invest $100K

Once you have the basics covered, you might be ready to invest your $100,000. The exact way you decide to invest depends on your unique situation.

Let’s explore some options you have when deciding how to invest money. Keep in mind that you could also hire a financial advisor to help you build a financial plan.

1. Build up your retirement savings

If you work for an employer that offers a retirement plan, such as a 401(k) plan, it is often one of the best ways to invest money for your future. These plans usually provide tax-free growth, which allows you to only pay taxes on the money you withdraw.

That may allow you to stash away quite a bit of money that won’t be taxed today. For 2024, the contribution limit is $23,000, or up to $30,500 for those over 50. If your employer offers matching contributions, you could have several thousand dollars flowing into your 401(k) every year.

For example, if your 401(k) contribution and employer match amount to $1,708 monthly, you’d save $20,496 in a year. If you maintain this contribution rate for 30 years, your contributions and employer match would be $614,000.

However, money in 401(k) plans is usually invested in stocks, bonds, and more. Assuming an average 6% gain on investments per year, you’d actually end up with about $1.62 million in your retirement investment account after 30 years.

2. Invest in the stock market

If you are contributing to a 401(k) plan, you may already be investing in the stock market. However, retirement plans through an employer often have a limited investment selection as well as contribution limits.

You could access more investment options and invest more money by opening your own accounts. For example, you could open an individual brokerage account or an individual retirement account (IRA), such as a traditional IRA or Roth IRA. These account types often provide many assets and asset classes you could invest in, including:

• Stocks: Stocks are one of the most popular types of investments, and it’s not difficult to understand why. Amazon stock, for instance, made millionaires and billionaires out of anyone who originally invested in 1997. Although this is an extreme example, the stock market tends to grow over time.
• Mutual funds: These are investment funds that pool money from investors and buy stocks, bonds, and more. Mutual funds are often actively and professionally managed, which might give them a strong performance but at higher fees.
• Exchange-traded funds (ETFs): These investment vehicles are similar to mutual funds in many ways, but they trade on exchanges, like stocks. ETFs are often passively managed. As a result, they often have lower fees than mutual funds.
• Index funds: Index funds attempt to mimic the performance of a market indicator, such as the S&P 500, which comprises the 500 largest publicly traded companies in the U.S. In other words, investing in index funds lets you invest in all of them with one deposit. Index funds often have low costs in addition to their simplicity, making them one of my personal favorite investment vehicles.

3. Invest using a robo-advisor

In the world of investing, robo-advisors fall somewhere between actively managed mutual funds and index funds. This is because robo-advisors aren’t fully passive, but aren’t actively managed by humans, either.

Instead, robo-advisors use algorithms to automate an investment strategy tailored to your needs. When you sign up, they usually have a questionnaire about your income, time until retirement, and risk tolerance.

Then, their technology manages your investments over time, including rebalancing based on your chosen investment portfolio allocation, such as what percentage to invest in stocks versus bonds. Because no human labor is involved, robo-advisors often have lower fees than actively managed mutual funds.

4. Invest in real estate

Learning how to invest in real estate gives you several advantages. Owning rental properties could generate strong cash flow and come with tax advantages. However, there aren’t many markets where $100,000 would allow you to buy even a single-family home outright.

Although you could take on a mortgage, an alternative method to access real estate investments is via a real estate investment trust (REIT). REITs allow you to invest alongside a group of investors who receive regular income from the investment. Real estate ETFs also give you access to this market and may pay regular dividends.

There are varying levels of risk associated with each form of investment, and as usual, performance is not guaranteed. Keep in mind that REITs and real estate ETFs may not have the tax advantages of owning your own properties.

5. Consider alternative assets

Alternative assets include any kind of investment that isn’t stocks or bonds. Examples include commodities, cryptocurrencies, precious metals, and more.

Although these forms of investment might have higher risks, they could also have higher returns. Plus, their performance may not be highly correlated with the stock market. In other words, they might do well even when the stock market does not. Of course, the opposite could also be true.

In general, my recommendation would be to do your due diligence before investing in any alternative assets, and be prepared to lose what you invest. If you go into it with that mindset, then hopefully you won’t put up more money than you are willing to lose.

6. Keep cash in a high-yield savings account

Keeping cash in a high-yield savings account is a good idea — even if you aren’t investing yet. You could also use one of these accounts to store your emergency fund and earn passive income in the form of interest payments.

These accounts tend to earn more interest than traditional banks. Using one of the best savings accounts could earn rates many times the national average. The Federal Deposit Insurance Corporation (FDIC) usually insures high-yield savings accounts for up to $250,000 per person.

The money you put in one of these accounts is highly accessible, which allows you to use it for sudden emergencies or future purchases.

Things to consider when investing $100K

Investing is one of the best ways to grow your money for the future. However, there are some things you should keep in mind before you get started.

1. Keep an eye on your fees

The fees you pay on your investments could have a high impact on the amount of money you have by the time you retire. Although compounding gains allows your money to grow over time, it’s important to remember that this also applies to fees.

To illustrate this point, imagine you invest $10,000 for one year with a fee of 1%. At the end of the year, your fee is $100, or 1% of your investment.

If you continue investing $10,000 yearly with a 1% fee and an average gain of 6%. In 30 years, you’d have more than $740,000. However, you also pay $154,000 fees, or more than 20% of your portfolio’s value.

This is why I often recommend low-cost index funds. These investments often have expense ratios of just 0.15% or even less.

2. Know which tax bracket you’re in

Another important factor to keep an eye on is your tax bracket. Higher tax brackets cut deeper into your annual income.

One way to adjust your tax bracket is using your 401(k) contributions. These contributions are tax-deferred, which means your taxable income is calculated after your contributions have already been made.

Hence, 401(k) contributions reduce the size of your taxable paycheck, potentially allowing you to drop to a lower income tax bracket. This tactic allows you to save money on taxes by sending more to your retirement account.

3. Maintain a diversified portfolio

Maintaining a diversified portfolio is crucial to long-term investing success. By avoiding putting all your eggs in one basket, you reduce your risk.

Individual stocks give us the best illustration of this. Imagine you invest all of your money in a single company. If you are fortunate, the company stock could increase by 20,000% and make you incredibly wealthy. Or the company could go out of business, and you end up losing your entire investment.

Diversifying your portfolio by investing in a mix of stocks, bonds, real estate, and other assets lowers your risk and gives a stronger base for your potential long-term gains. This is because a diversified portfolio tends to have lower volatility in the short term.

4. Know your risk to weather bad markets

The greater the risk, the greater the reward. Everyone likes high investment returns, but high returns tend to increase the chances of a volatile investment that may perform poorly for long periods.

Understanding your risk level and having extra money for your daily needs could help you survive bad market conditions. Consider that the longest bear market in U.S. history lasted 630 days, or nearly two years, back in the 1970s. The Great Recession in 2007-2008 lasted more than 400 days.

Only invest money you would be comfortable not accessing during a lengthy bear market. You could also consider investing in bonds because they tend to be more stable. Of course, with lower risk, you will also receive less reward.

FAQs

Bottom line

Investing can be a great way to build wealth in the long term. If you have $100,000 to invest, you are starting with a good nest egg. However, make sure to have your bases covered by paying off any high-interest debt and building an emergency fund.

Once you have the basics covered, you could start saving for retirement and investing in the stock market. You could even consider alternative investments, such as crypto assets and commodities.

An investment advisor could help you decide your asset allocation and build a portfolio that fits your goals. Of course, always be sure to check your fees and maintain your portfolio diversification to reduce your risk.